Bitcoin is a incredible use of peer to peer communication and
encryption, allowing direct and immediate money transfer without any
central control. It is sometimes claimed to be ideal for illegal
activity, which I believe is quite a long way from the truth. At least
I would not conduct illegal money transfers using a system where the
details of every transaction are kept forever. This point is
investigated in
USENIX ;login:
from December 2013, in the article
"A
Fistful of Bitcoins - Characterizing Payments Among Men with No
Names" by Sarah Meiklejohn, Marjori Pomarole,Grant Jordan, Kirill
Levchenko, Damon McCoy, Geoffrey M. Voelker, and Stefan Savage. They
analyse the transaction log in the Bitcoin system, using it to find
addresses belong to individuals and organisations and follow the flow
of money from both Bitcoin theft and trades on Silk Road to where the
money end up. This is how they wrap up their article:

"To demonstrate the usefulness of this type of analysis, we turned
our attention to criminal activity. In the Bitcoin economy, criminal
activity can appear in a number of forms, such as dealing drugs on
Silk Road or simply stealing someone else’s bitcoins. We followed the
flow of bitcoins out of Silk Road (in particular, from one notorious
address) and from a number of highly publicized thefts to see whether
we could track the bitcoins to known services. Although some of the
thieves attempted to use sophisticated mixing techniques (or possibly
mix services) to obscure the flow of bitcoins, for the most part
tracking the bitcoins was quite straightforward, and we ultimately saw
large quantities of bitcoins flow to a variety of exchanges directly
from the point of theft (or the withdrawal from Silk Road).

As acknowledged above, following stolen bitcoins to the point at
which they are deposited into an exchange does not in itself identify
the thief; however, it does enable further de-anonymization in the
case in which certain agencies can determine (through, for example,
subpoena power) the real-world owner of the account into which the
stolen bitcoins were deposited. Because such exchanges seem to serve
as chokepoints into and out of the Bitcoin economy (i.e., there are
few alternative ways to cash out), we conclude that using Bitcoin for
money laundering or other illicit purposes does not (at least at
present) seem to be particularly attractive."

"Anonymity in Bitcoin, a peer-to-peer electronic currency system, is a
complicated issue. Within the system, users are identified by
public-keys only. An attacker wishing to de-anonymize its users will
attempt to construct the one-to-many mapping between users and
public-keys and associate information external to the system with the
users. Bitcoin tries to prevent this attack by storing the mapping of
a user to his or her public-keys on that user's node only and by
allowing each user to generate as many public-keys as required. In
this chapter we consider the topological structure of two networks
derived from Bitcoin's public transaction history. We show that the
two networks have a non-trivial topological structure, provide
complementary views of the Bitcoin system and have implications for
anonymity. We combine these structures with external information and
techniques such as context discovery and flow analysis to investigate
an alleged theft of Bitcoins, which, at the time of the theft, had a
market value of approximately half a million U.S. dollars."

I hope these references can help kill the urban myth that Bitcoin
is anonymous. It isn't really a good fit for illegal activites. Use
cash if you need to stay anonymous, at least until regular DNA
sampling of notes and coins become the norm. :)